Forrester: Worldwide Spending for Online Advertising Will Reach $15 Billion by 2003

Posted on August 19, 1998

Steady growth in the world's on-line population and the arrival of mainstream advertisers will push global spending for on-line advertising to more than $15 billion in 2003, according to a new Report from Forrester Research, Inc. Forrester also expects to see during the next five years further consolidation among media companies, driven by dramatic gains in international markets, intense competition, and the Internet's economies of scale.

Spending for on-line advertising will continue to be dominated by the United States, though international markets will gain a significant share of the worldwide total by 2003. Forrester estimates that U.S. spending for Internet ads will grow from $1.3 billion in 1998 to $10.5 billion in 2003. Despite this eightfold increase, the U.S. share of the worldwide market will decline from 87% in 1998 to 70% in 2003.

International ad spending will be led by Europe, where the on-line market is expected to grow from $105 million in 1998 to $2.8 billion in 2003. This spending will be pushed by an increasingly cohesive European market, a growing Internet population, competition from U.S.-based companies, and maturing technologies. Slowed by ongoing economic difficulties, Asian ad spending will grow to $1.25 billion in 2003. Dramatic growth in Latin America will be masked by a small Internet population and a low starting point for ad spending.

"The Internet has arrived as an accepted advertising medium," said Bill Bass, director of Forrester's Media & Technology Strategies service and co-author of the Report. "This is evidenced by the amounts that will be spent for on-line ads during the next five years, as well as by the arrival of large mainstream advertisers. The next challenge facing media companies will be developing the revenue opportunities presented by a growing international market."

To succeed, media companies will need the high volumes that the international market offers to offset low on-line ad margins, which Forrester expects to settle near 10%. Media companies that arrive in a market early, partnering with local service and eCommerce providers, will gain a competitive advantage that will be difficult to overcome later. In particular, Forrester expects the major portal providers and service companies to play key roles in establishing global brands.

"Traditional media companies that are late to the Internet can take advantage of the Net's unique dynamics by investing in global category-killers, partnering with best-of-breed local content providers, or buying up local resources to corner a particular category, like classified ads," noted Chris Charron, a senior analyst in the Media & Technology Strategies service and co-author of the Report. "Media companies with established tools and services should export them to gain an early share in emerging markets."

In addition to the growth in overall spending, Forrester expects per capita spending for on-line ads in the United States to bypass radio and magazine ads by 2003. Internet advertisers will spend $25 per person in 1998 -- double the amount spent in 1997. By 2003, this number will grow to $104 per person, roughly one-third of per capita spending for television ads but slightly ahead of magazine and radio spending.

The Report "Media's Global Future" is based on interviews with major global advertisers, advertising agencies, and media companies in Asia, Europe, and North America. To determine the current market size, Forrester estimated total ad dollars spent and then adjusted spending downward to account for reciprocal advertising, revenue sharing, and intra-industry spending. All three numbers are believed to boost reported U.S. numbers because new media valuations are linked to top-line revenues.